In early morning trade, New York main oil futures contract, light sweet crude for July delivery, dropped 71 cents to 133.90 dollars per barrel.

The benchmark contract closed at 134.61 dollars a barrel on Monday after earlier spiking to an all-time high of 139.89 dollars during floor trading at the New York Mercantile Exchange.

London's Brent North Sea crude for August delivery slipped 46 cents to 134.25 dollars a barrel, after settling at 134.71 dollars on Monday. The contract had struck a record 139.32 dollars on Monday.

Market speculation swirled ahead of Saudi Arabia's unusual summit of oil producing and consuming nations, to be held Sunday in Jeddah to discuss runaway oil prices.

On Sunday United Nations secretary general Ban Ki-Moon said that Saudi Oil Minister Ali al-Nuaimi had told him the desert kingdom, which has a quarter of the world's proven oil reserves, would hike oil output by 200,000 barrels per day (bpd) in July.

But Ban also quoted Nuaimi as saying that he felt oil-consuming countries should play their part to stabilise prices by reducing national taxes and combating speculators.

The largest oil producer in OPEC is currently producing 9.45 million bpd after announcing an increase of 300,000 bpd last month following a visit by US President George W. Bush.

The Saudi increase report came amid growing pressure for more oil from the Organisation of the Petroleum Exporting Countries cartel, which pumps about 40 percent of world output.